Thursday morning,
Toyota warned that profits would plunge by a stunning 68 percent. We are used to hearing such things from Detroit, but this is the first drop in profit from Toyota in nine years. Meanwhile,
a top General Motors executive said the next 100 days could be the most crucial days ever for his company and for the entire car industry. On Friday,
GM and Ford will release the latest sales figures, which are expected to be bad.
If I were running a newspaper or TV network, I would assign some bright folks to cover the car industry for the next few months, just as some of you covered the real estate story. This could be huge.
Car dealerships are dropping like flies, and 2009 looks worse.
The Atlanta Journal-Constitution says:
Nationwide, 590 new-car dealerships have closed this year, according to NADA, which projects 700 closures by year-end. Last year, 430 dealers closed. Dealers that sell GM, Ford and Chrysler vehicles are affected the most, experts said, because those automakers have been losing market share to Toyota, Honda and other foreign manufacturers for years.
The Center for Automotive Research in Ann Arbor, Mich., predicts that at least one of Detroit's Big Three automakers
could fail within the next year unless it gets a cash infusion from you, the taxpayers.
Read more to learn why a lack of new car sales is causing problems at small mom-and-pop used car lots.A bunch of car dealers work out at the same gym I do. They were telling me Thursday morning that one by one, small mom-and-pop car lots are closing for two reasons:
1.) The used car lots cannot find good used cars. New car sales have dried up, and the used car lots get their used cars from new car stores or auctions. The cars make it to the auctions from the new car dealers dumping their trade-ins.
2.) This is the obvious one. People who go to low-cost car lots often are the very folks who needed or wanted the sub-prime home loans. They have shaky credit and now can't even get a loan to buy a used car.
The Atlanta Journal-Constitution explains the automotive credit crunch this way:
The credit crunch, which started with the housing market, dealt auto dealers a triple blow. The market for bonds backed by auto loans froze, along with the market for similar bonds backed by mortgages. That, in turn, caused lenders to tighten auto buyer's credit and then yank some dealers' access to so-called "floorplan" financing for their vehicle inventories.
Meanwhile, delinquency rates on car loans taken out at dealerships -- which accounts for nine out of 10 auto loans -- have soared, adding to the strain. The percentage of auto loans that were at least 30 days late has doubled since 2004, to more than 3 percent in the second quarter, according to the American Bankers Association. The delinquency rate was almost double that of auto loans obtained directly from banks.
Dealers' "motivation is to sell a car, so they're more likely to cut corners on financing," said Keith Leggett, senior economist for the bankers association.
Cars are so reliable nowadays, that my current vehicle only...
